Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Earnings Preview: Analysts Say Oracle is #Winning

Enterprise software giant Oracle reports its quarterly earnings tomorrow after the close of market, and the analysts who cover the company are all in agreement: The results should mean a pretty good day for CEO Larry Ellison (seen here hoisting the America’s Cup).

The consensus view of analysts says that Oracle will report $10.75 billion in sales and a profit of 71 cents a share, but several analysts expect the company to beat the consensus view.

“#Winning: Ignore the Noise” was the unironic title of Credit Suisse analyst Philip Winslow’s note to clients on June 9. The “noise” he referred to was a recent selloff in Oracle shares, and a drop in its share price from its highest point in five years: $36.50 in May to less than $31 a share last week. What happened? Macroeconomic concerns, for one. Both the Nasdaq and the Dow Jones Industrial Average have been down this month, despite a surge yesterday, mainly on worries surrounding weak jobs reports.

At Oracle specifically, there were also concerns, Winslow writes, about a shakeup in Oracle’s sales force, and slowing sales momentum on the Exadata server line. Winslow dismisses both: Oracle, he says, met and probably exceeded its May sales targets, and saw a boom in sales of its Fusion Middleware, Siebel, and PeopleSoft software. On top of that, lingering concerns that Oracle’s acquisition of Sun Microsystems might drag down Oracle’s overall profit margin are overstated, Winslow says: “We believe that Oracle’s Exadata and Exalogic pipeline is beginning to translate into a more meaningful revenue stream that will ultimately drive meaningful upside to long-term estimates.” The recent selloff in Oracle shares, he says, is a buying opportunity.

Winslow’s checks with Oracle’s customers suggest that the last two months of the quarter were “extremely busy” for Oracle’s sales team as it sought to aggressively close deals ahead of the close of the end of Oracle’s fiscal year. He says the pipeline for the quarter ending in August looks good, too.

He also takes a lengthy look at some changes to Oracle’s sales team, and finds that Oracle’s team tended to spend most of its time with customers who bought the most, while those who tended to buy less got less attention, meaning that some business was getting left on the table. Under a change implemented by new president Mark Hurd, these “non-focus” accounts are getting renewed attention from new salespeople. Meanwhile the salesperson retains his or her “focus” accounts with roughly the same sales quota but with fewer accounts to manage overall. The result, he says, should help sales in the long run.

Winslow expects Oracle to report $10.8 billion in sales and earnings of 72 cents a share.

Gleacher & Company analyst Yun Kim expects a strong quarter, too: “In our view, the overall enterprise IT spending environment remains resilient and continues to be driven by large, highly strategic IT infrastructure investments and new business initiatives,” Kim wrote in a June 8 note to clients, though, unlike Winslow at Credit Suisse, he remains concerned about the August quarter.

The first quarter of Oracle’s fiscal year is typically its weaker quarter seasonally, Kim says, but that’s not an indication of a longer-term weakness. “We believe Oracle is likely to issue Q1 guidance that is in-line with our and current street estimates, which could imply greater seasonal F1Q weakness than in recent years,” he writes. “We would not interpret in-line F1Q guidance as any negative indication of its current state of business, which we believe remains strong.” Kim expects Oracle to report sales just shy of $10.9 billion, and per-share earnings of 71 cents.

ThinkEquity analyst Brian Schwartz, in his own checks of Oracle’s sales channel, noticed a positive trend, too: “On average, contacts finished 2 percent above their plans and most report Oracle experienced a better demand environment the past three months,” he wrote in a June 17 note. He said he did notice a “softening trend” in IT spending by financial services companies, but that a weakness there could be offset by stronger sales of Exadata hardware. One of Schwartz’s contacts tells him that Oracle’s Exadata products are “killing HP in the market” and “taking share from all the storage players.” Hewlett-Packard shareholders, take note.


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